Friday

06-06-2025 Vol 19

Fed Expected to Maintain Stance as Inflation Cools and Consumers Remain Cautious, Reports Reuters AP Newsletters

Federal Reserve officials are expected to maintain their current interest rates due to recent data indicating lower inflation and a cautious consumer environment. The latest figures reveal that the Personal Consumption Expenditure (PCE) price index rose by 2.1% year-over-year in April, a slight decrease from the 2.3% increase in March. This puts inflation close to the Fed’s target of 2%.

However, analysts predict this trend may not persist, given that businesses could shift some of the increased costs from tariffs onto consumers. The report also showed signs of rising goods prices. Economic researcher Olu Sonola from Fitch Ratings interprets the favorable inflation reading as merely a ‘calm before the storm.’

He emphasizes that the Fed intends to hold its position while monitoring the situation closely, unless there are significant changes in consumer spending or a sharp rise in unemployment. The Commerce Department reported a slowdown in consumer spending growth to 0.2% in the previous month, along with an increase in the personal saving rate to 4.9% from 4.3%. These indicators reflect a renewed cautiousness among consumers, driven by the ongoing uncertainties surrounding tariff policies.

The Fed has maintained short-term borrowing rates in the range of 4.25% to 4.50% since December. Concerns about the impact of tariffs on inflation have prompted officials to remain vigilant. San Francisco Fed President Mary Daly highlighted that while inflation is currently above target, the labor market remains strong, necessitating a cautious approach to rate adjustments.

Similarly, Dallas Fed President Lorie Logan indicated uncertainties about the implications of tariffs on employment and inflation leave the Fed in a holding pattern. Despite the cautious sentiment from Fed officials, market traders are betting on the potential for rate cuts by September, anticipating a gradual reduction that could see the policy rate drop to between 3.75% and 4.0% by the end of the year.

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